Republicans Propose to Eliminate Medicare and gut Social Security

Americans have been wondering aloud for the past year about the existence Republican ideas related to topics such as entitlement reform, especially as it applies to our national health care debate. Republicans, for their part, have been characterized, perhaps unfairly, as the party of “NO” ideas. It turns out that some Republicans have now come forward with their reform proposals in opposition to the Democrat ideas. George Will recently wrote an article entitled, “How to get the country to solvency on entitlements.”

Will gives gushing support to the theories of Indiana Governor Mitch Daniels and Wisconsin Representative, Paul Ryan. A link to his column is included below. These men are two of the rising stars in the Republican party. In fact, George waxes poetic about the day when Daniels ascends to the Presidency, while Ryan takes the number two spot. High praise indeed. Both gentlemen have been involved in various Republican think tanks that are trying to come up with ideas that are consistent with Conservative values and are policies that Republicans can support in opposition to current Democratic proposals. Daniels, in fact, wrote Roadmap for America’s Future. A link to that article is imbedded in Will’s article.

http://www.washingtonpost.com/wp-dyn/content/article/2010/02/05/AR2010020503475.html

George is a talented writer and his advocacy makes Daniels’ and Ryan’s ideas sound very appealing. Conservatives who desire less government are enthusiastic about these guys. Will writes,

“Ryan would eliminate taxes on interest, capital gains, dividends and death. The corporate income tax, the world’s second-highest, would be replaced by an 8.5 percent business consumption tax. Because this would be about half the average tax burden that other nations place on corporations, U.S. companies would instantly become more competitive — and more able and eager to hire. ”

These ideas resonate with lots of folks who believe that you can expand the economy by cutting taxes to large corporations. Ryan leaves unanswered, however, the question of how to make up the revenue gap created by this proposal. Apparently, the economy would expand, some money would trickle down to everyone, and that would make up for the shortfall.

Let’s assume Ryan’s numbers are accurate, which is, at best, a leap of faith. Ryan, “proposes tax reform. Masochists would be permitted to continue paying income taxes under the current system. Others could use a radically simplified code, filing a form that fits on a postcard. It would have just two rates: 10 percent on incomes up to $100,000 for joint filers and $50,000 for single filers; 25 percent on higher incomes. There would be no deductions, credits or exclusions, other than the health-care tax credit.”

This is the flat tax idea that Conservatives love. Complete your taxes on a postcard! Get rid of the IRS? Once again the idea is proposed without any CBO scoring of it’s potential revenue implications. This proposal also raises a philosophical question. If higher incomes earners pay 25% of their income and lower income earners pay 10%, isn’t that redistribution of wealth? Isn’t that what Conservatives have criticized the current administration for?
I’m just asking.

Inconvenient details aside, what could be better than a simplified tax code, tax cuts for multi-national corporations, and a rejuvenated economy? The plan has something for everyone. We all know, however, that entitlements are the key to our future. Entitlements currently consume over $.50 of every Federal $1.00. How does Daniel and Ryan handle the 800 lb. Gorilla in the room?

“Medicare and Social Security would be preserved for those currently receiving benefits or becoming eligible in the next 10 years (those 55 and older today). Both programs would be made permanently solvent. Universal access to affordable health care would be guaranteed by refundable tax credits ($2,300 for individuals, $5,700 for families) for purchasing portable coverage in any state. As persons younger than 55 became Medicare-eligible, they would receive payments averaging $11,000 a year, indexed to inflation and pegged to income, with low-income people receiving more support. Ryan’s plan would fund medical savings accounts from which low-income people would pay minor out-of-pocket expenses. All Americans, regardless of income, would be allowed to establish MSAs — tax-preferred accounts for paying such expenses. ”

Health care is portable. Medicare and Social Security is solvent. Where do we sign up? Wait a minute. Currently health care costs run about $11,000 a year for a husband and wife. Family plans have even higher costs. Experts have predicted that under the current system Health care costs will double by 2020. How do individuals pay that expense with a $5700 a year credit? There is another problem. The Republican proposal is a tax credit. You have to spend the money first, then get reimbursement later when you file your taxes? What if you don’t have the money up front?

There is other problems with this plan. Let’s use a 45 years old male as an example. Under the Republican plan he will receive $11,000 a year. Great! What happens if our 45 year old need quadruple bypass surgery at 55, or a knee or hip replacement? In other words, what if the surgery amount greatly exceeds the MSA? Those procedures today would easily cost more than the $110,000 accumulated in the MSA account? Future costs are even more problematic. This proposal does not address out of control medical costs down the road? Ryan is silent on that issue. Apparently that is too much government interference for him.

“Ryan’s plan would allow workers younger than 55 the choice of investing more than one-third of their current Social Security taxes in personal retirement accounts similar to the Thrift Savings Plan long available to, and immensely popular with, federal employees. This investment would be inheritable property, guaranteeing that individuals will never lose the ability to dispose of every dollar they put into these accounts. ”

This sounds really attractive. Individuals keep their money and control their own assets. If an individual dies early, their family get the money. What would happen, however, in the event of a market crash, like the one we recently experienced? What if that personal account was suddenly wiped out? Additionally, what happens to Social Security if it suddenly receives 1/3 less funding than in the past? It’s a fact that most companies no longer offer a retirement plan. If people lose their nest egg and have no safety net, what then? Ryan apparently does not offer an answer for that either.

“Ryan would raise the retirement age. If, when Congress created Social Security in 1935, it had indexed the retirement age (then 65) to life expectancy, today the age would be in the mid-70s. The system was never intended to do what it is doing — subsidizing retirements that extend from one-third to one-half of retirees’ adult lives.”

It’s not clear how many actually live to 130 years old. Well, nobody really, but it sounds good. Ryan wants to raise the retirement age at a time when baby boomers are reaching their golden years. Boomers paid taxes their entire life with the promise that they would have a supplemental income in retirement. Many planned their retirement accordingly. Moving the retirement age to 75 would not be supported by this group. First of all, could a person in their 70’s meet the physical demands of their job? Secondly, would their employers still want them? Older workers are generally the most highly compensated employees. What about the group under 55. Are they willing to forego Social Security entirely or at a seriously diminished amount and pay for older Americans? If private accounts fail, what is Plan B?

So we now know have the Republicans plan. It is clear they are not the party of “No” ideas as many thought. They have, with this Roadmap for America’s Future provided the Conservative vision for the overhaul of entitlements in the 21st century. These ideas, supported by Conservatives like George Will, include scrapping Medicare and Social Security. Are these really new and different ideas or simply a rehash of traditional Republican policies? When you think about it, this is the classic Republican approach with different packaging. Republicans have tried to overturn Democrats efforts to provide a social safety net for Americans for over 50 years ago. Unfortunately the same philosophical weaknesses that existed 50 years ago, continue to haunt Republicans today. The Republicans philosophy of less government intervention keeps them from offering real solutions to the real problems that individual Americans face.

Republicans have no answer to the problems they will create for the millions affected by the loss of Medicare and Social Security. If our citizens lost Social Security, many would lose a large percentage of their retirement income. There is no mechanism to help these people recover the income that is necessary for their basic survival. If our government killed Medicare, millions would find themselves without the means to pay for their health care. To understand a potential Republican response, look at the Republican response to middle class Americans who loss health care coverage. Our current health care system has left millions uninsured. Millions more have declared personal bankrupsey because of overwhelming medical debt. Addressing these inequalities would require government intervention which is antithetical to the Republican philosophy. Conservatives like George Will, choose to dismiss this problem by arguing that the numbers of these people without coverage are smaller than liberals claim or non-existent. That is the same response you could expect from Republicans if Medicare ceased to exist.

George Will misses the real issue involving Medicare and Social Security. The real issue is people. We need to rein in entitlement spending AND continue to provide a safety net for our citizens. Most agree that Social Security can be made solvent with some minor reforms. Medicare is more difficult. The problem with Medicare is run away health care costs caused by a system critically in need of reform. Insurance companies currently enjoy a monopoly and hide behind anti-trust exemptions. We need to repeal the anti-trust and end the monopoly. We need to promote competition in all areas of the system. Use the power of the government to obtain volume pricing, rein in excess insurance company profits, and aggressively root out fraud and abuse within Medicare itself with better systems and more investigators.

How will all of this fall out? Why is the Republican party not trumpeting these proposals and fighting for public support? The most pressing problem Republicans face in implementing their ideas is their own constituency. Many so called Conservatives love to say they support less government. Those same Conservatives, however, also love their safety net. Republicans draw a large amount of their support from older Americans. Most older Americans would not support the repeal of Medicare or Social Security and would revolt against any political party that tried.

The answer to the entitlement question is not to scrap the entitlement. That is the easy response to a difficult problem. Clearly, the funding of these programs need reform. Fraud and abuse within the system itself needs to addressed. Price gouging by private business and monopolistic practices needs reform. The programs themselves, however, need to endure.

Medicare and Social Security was started to help older Americans survive their elder years with dignity. They need to endure.